Embed Size (px)
Citation preview
Tax Dispute Resolution Quarterly
Summer 2018
kpmg.com
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Issue spotlightIRS extends CAP program—Modifying some rules and signaling more significant changes may lie aheadBy Mike Dolan and Timothy McCormally, Washington National Tax
On August 27, the IRS announced both the continuation of and changes to its Compliance Assurance Process (CAP) program for 2019. The highly lauded CAP program, begun as a pilot in 2005 and made permanent in 2011, provides for “real-time audits” of taxpayers—i.e., the review and resolution of tax issues through open, cooperative, and transparent interactions between the IRS and taxpayers before the filing of a return.
This September article provides an overview of the CAP program, performs a cost-benefit analysis from a taxpayer perspective, and makes some observations on the modifications made by the IRS in IR-2018-174.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
ContentsIRS practice and procedure
Tax reform breathes new life into choice of entity decision
An excess of uncertainty: The new tax on tax-exempt compensation
Home equity interest may still be deductible
Enforcement trends
Foreign information reporting penalties: Assessable or not?
Tax Court sides with IRS, rejects captive’s insurance company status
State & local tax
Quill overturned in Wayfair decision
Conformity Update 2018: An overview of 2018 corporate conformity bills
State and local incentive arrangements from REIT perspective
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Global tax disputes
Corporate board oversight and governance
OECD & BEPS
KPMG comments on future revisions to OECD transfer pricing guidelines
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
IRS practice and procedureTax reform breathes new life into choice of entity decisionRecent changes in tax rates have altered the “choice of entity” determination for (Read more)
An excess of uncertainty: The new tax on tax-exempt compensationIn this June 25 article in Tax Notes (Read more)
Home equity interest may still be deductibleThe new tax law, originally known as the Tax Cuts and Jobs Act (Read more)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Tax reform breathes new life into choice of entity decision
An excess of uncertainty: The new tax on tax-exempt compensation
By Deanna Walton Harris, Debbie Fields, and Barbara Rasch, Washington National Tax
Recent changes in tax rates have altered the “choice of entity” determination for new and existing businesses. This July article describes some of the federal tax considerations involved when choosing or changing the tax classification of a closely held business entity and explains how changes to the taxation of income earned or distributed by business entities may affect those considerations. The article also illustrates the consequences of the choice if additional changes in the federal tax law make the entity selected less desirable in the future.
By Alexandra O. Mitchell, Preston J. Quesenberry, and Randall S. Thomas, Washington National Tax
In this June 25 article in Tax Notes, the authors examine the new excise tax imposed on remuneration exceeding $1 million paid by tax-exempt organizations to some employees, and they discuss technical issues arising from the statute’s borrowing of several terms and concepts from section 162(m). The authors also explore numerous questions raised by other defined terms in the statute and offer possible interpretations for consideration.
IRS tax tip: Here’s what taxpayers should know about penalty reliefA taxpayer may qualify for relief from some penalties under certain circumstances. On June 28, the IRS issued Tax Tip 2018–100 advising the public on requesting the IRS to first consider the reasonable cause relief provision in order to preserve “first time abatement,” which the taxpayers can only use every 3 years.
Accounting methods and credits considerations post-tax reformThe new tax law enacted in December 2017 brings a multitude of changes to the Internal Revenue Code. It not only reduced the corporate tax rate but has had an immediate impact on income and expense recognition, cost, recovery, and credits.
From increased expensing, income inclusion, mandatory repatriation, BEAT, to section 199 repeal, KPMG LLP’s Accounting Methods and Credit Services (AMCS) team can assist companies in all industries achieve greater tax efficiency. AMCS uses a multi-disciplinary approach and a consistent tax consulting methodology to help companies manage their cash taxes, effective tax rate, and tax risks.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Webcast: International tax reform issues for banksDuring this one-hour June 5 webcast, KPMG international tax and banking professionals provided insights into the current international tax landscape and the more common issues facing banking organizations. Topics covered include Global Intangible Low-Taxed Income (GILTI) and expense allocation considerations for banks, foreign tax credit “basket” for branch income, Base Erosion and Anti-abuse Tax (BEAT) and base erosion percentage considerations for banks and securities dealers, and the outlook on anticipated guidance.
Home equity interest may still be deductibleBy Liz L’Hommedieu and Chris Stroeer, Washington National Tax
The new tax law, originally known as the Tax Cuts and Jobs Act, Pub. L. No. 115–97, includes substantial changes to the taxation of individuals and businesses of all sizes. Among these changes, certain aspects of an individual’s deduction for home equity interest have been temporarily modified. For tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, an individual’s deduction for qualified residence interest expense has been amended to disallow a deduction for interest on ‘‘home equity indebtedness.’’ However, when it comes to home equity lending and borrowing, there is more than meets the eye for purposes of this deduction. ‘‘Home equity indebtedness’’ is a specifically defined term, and to the extent certain criteria are met, a taxpayer may still be able to deduct interest paid on a home equity loan, home equity line of credit, second mortgage, or similar product.
This article in the June 26 issue of Bloomberg BNA’s Daily Tax Report details more about home equity interest under the new tax law.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Enforcement trendsForeign information reporting penalties: Assessable or not?The IRS automatically assesses and collects monetary penalties under sections 6038 and 6038A—chapter 61 penalties. (Read more)
Tax Court sides with IRS, rejects captive’s insurance company statusIn June, the U.S. Tax Court found that a corporation was not a captive insurance company, but rather a foreign corporation (Read more)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Foreign information reporting penalties: Assessable or not?By Erin Collins and Garrett Hahn, Tax Controversy Services
The IRS automatically assesses and collects monetary penalties under sections 6038 and 6038A—chapter 61 penalties. But where in the Code is its authority to treat these penalties as assessable? How are these chapter 61 penalties within the scope of “assessable penalties”? They don’t appear to fall under assessable penalties within chapter 68 and subchapter B. Tax practitioners, however, have generally assumed the IRS has authority to assess and collect penalties under sections 6038 and 6038A.
This article from the July 9 issue of Tax Notes, questions the IRS’s statutory authority to treat monetary penalties under sections 6038 and 6038A as assessable.
Tax Court sides with IRS, rejects captive’s insurance company statusBy Sheryl Flum, Fred Campbell-Mohn, Liz Young, and Rob Nelson, Washington National Tax
In June, the U.S. Tax Court found that a corporation was not a captive insurance company, but rather a foreign corporation subject to the 30% withholding tax on its “fixed or determinable annual or periodical” (FDAP) income imposed by section 881(a)(1). Read an overview and initial observations of the case, Reserve Mechanical Corp. v. Commissioner, T.C. Memo 2018-86 (June 18, 2018), in this June KPMG report.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
State & local taxQuill overturned in Wayfair decisionThe U.S. Supreme Court on June 21 held in favor of the state in South Dakota v. Wayfair, Inc. (Read more)
Conformity Update 2018: An overview of 2018 corporate conformity billsBy mid-June, most fixed-date states—those states that tie to the Internal Revenue Code (Read more)
State and local incentive arrangements from REIT perspective Nearly three years after taxpayer requests, the IRS issued on April 20, 2018, (Read more)
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Quill overturned in Wayfair decisionThe U.S. Supreme Court on June 21 held in favor of the state in South Dakota v. Wayfair, Inc.—a sweeping decision in which the Court concluded that the physical presence sales and use tax nexus rule last articulated by the U.S. Supreme Court in Quill is “unsound and incorrect.”
In the five-to-four decision authored by Justice Kennedy, the Court held that the Court’s earlier decisions in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), “should be, and now are, overruled.” The Court then vacated the South Dakota decision holding in favor of the taxpayers and remanded the case to the state court for “further proceedings not inconsistent with this opinion.”
— August 30 webcast: What does the Supreme Court Wayfair decision mean for tax-exempt organizations?
— July 12 KPMG report: Financial reporting implications of Wayfair
— June 26 webcast: The wait for Wayfair is over – What’s next?
— June 21 Tax News Flash: U.S. Supreme Court: Initial impressions of Wayfair decision
Webcast: Recent developments affecting banking industryDuring this August 22 webcast, KPMG subject matter professionals from the Washington National Tax and State and Local Tax practices discussed recent federal and state tax developments, and the effects on the banking industry.
Topics included:
— Wayfair and key considerations for banks
— State developments, including NJ tax reform
— State tax considerations for qualified opportunity zones
— Proposed section 199A regulations and the implications for S corporation banks
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Conformity Update 2018: An overview of 2018 corporate conformity bills
State and local incentive arrangements from REIT perspective
By the SALT group in Washington National Tax
By mid-June, most fixed-date states—those states that tie to the Internal Revenue Code as of a specific date—had acted in 2018 to update their conformity in response to the 2017 federal tax law. The only fixed-date states that had not acted at all to update their conformity are Arkansas, California, New Hampshire, and Texas. Certain of these states have unique conformity to the Code and California and Texas do not update each year.
In other fixed-date states, conformity legislation was proposed, but never made it across the finish line. In South Carolina, lawmakers failed to enact conformity legislation during the regular session, but conformity is on the agenda for a special session. In Maine and Minnesota, conformity was included in larger tax bills that failed to pass or were vetoed during the regular sessions and there are no (current) plans to hold special sessions. Lastly, at press time various bills containing conformity provisions have failed in Vermont.
And not to be outdone, several rolling conformity states—those states that tie to the Internal Revenue Code in effect for the year—also enacted legislation addressing various aspects of federal tax reform.
Because there are some complexities to the conformity bills enacted during Q2 and other legislation addressing tax reform, this June 2018 article summarizes the bills and any provisions in the bills that specifically address key federal corporate tax reform changes in lieu of including details in the checklist. This article includes the conformity bills enacted in Q1 and Q2.
By David Lee, Washington National Tax, and Orla O’Connor, Business Tax Services
Nearly three years after taxpayer requests, the IRS issued on April 20, 2018, three identical private letter rulings addressing whether the right to receive payments out of new tax revenue collected by a municipality as the result of a real estate development is a qualifying real estate investment trust (REIT) asset and whether the payments are qualifying REIT income.
An article in the July 11 issue of Bloomberg BNA’s Daily Tax Report summarizes and contextualizes the three IRS rulings and relevant tax rules concerning tax treatment under the REIT rules for incentive payments from a municipality involving tax increment financing, and attempts to explain why the delay in issuing the rulings.
2018 second quarter summary of state, local tax changes This report, prepared by KPMG’s State and Local Tax practice, provides a summary of state and local tax developments for the second quarter of 2018 in table format.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Global tax disputesCorporate board oversight and governanceWith the critical role that corporate culture plays in driving a company’s performance and reputation, boards today are reassessing their approach to oversight of culture. KPMG’s latest report, Board oversight of corporate culture, shares highlights and takeaways from KPMG’s Director Roundtable series.
The Financial Reporting Council has issued a revised United Kingdom Corporate Governance Code to reflect the changing business environment and focuses on long-term success, sustainability, and public trust in business. Read a report on it prepared by KPMG’s Board Leadership Centre (UK).
Global Tax Disputes Update—June 2018With tax audit and dispute activity rising in almost every country, keeping up with developments is more important than ever. In this edition of Global Tax Disputes Update, you’ll find briefings on key news, events, and thought leadership from Global Tax Dispute Resolution & Controversy professionals in KPMG member firms worldwide. Staying informed can be a crucial first line of defense as you manage your disputes around the globe.
Make sure to view our past issues of Global Tax Disputes Update.
Sharon Katz-Pearlman
Head of KPMG’s Global Tax Dispute Resolution & Controversy
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
OECD & BEPS
BEPS Action 13: Latest country implementation update Updated weekly, this summary report in table format offers a snapshot of implementation of country-by-country (CbC) reporting and Master file/Local file documentation requirements around the world.
KPMG comments on future revisions to OECD transfer pricing guidelines The Organisation for Economic Co-operation and Development (OECD) in May 2018 announced it was considering two new projects to revise guidance in the OECD’s Transfer Pricing Guidelines—specifically possible changes to Chapter IV (administrative approaches) and Chapter VII (intra-group services).
On June 20, 2108, KPMG’s Transfer Pricing Services group submitted comments to the OECD on the potential amendments to the OECD Transfer Pricing Guidelines.
— KPMG’s comments on the scope of the future revision of Chapter IV (administrative approaches) of the Transfer Pricing Guidelines
— KPMG’s comments on the scope of the future revision of Chapter VII (intra-group services) of the Transfer Pricing Guidelines
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
WashingtonNational Tax,
Practice, Procedureand Administration
EmploymentTax/Independent
ContractorReviewServices
KPMG Tax Dispute Resolution (TDR) Network
TaxControversy
Services
State and LocalControversy
Services
ComplexInterestServices
InternationalTax Controversy
Services
TransferPricing Dispute
ResolutionServices
• Research Credit and Section 199 Defense Assistance• Valuation Defense Assistance• Global Tax Controversy and Dispute Resolution• Global Mobility Services• Post Transaction Integration Assistance• Trade & Customs• Tax Transparency Services
E-Data Analysisand DocumentManagement
Services
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 801103
Contacts
KPMG LLP’s Tax Dispute Resolution ServicesKPMG’s Tax Dispute Resolution Services network helps companies prevent, prepare for, and respond to challenges by the varying tax authorities. The network is a national team of tax professionals, who assist companies in identifying, managing, and mitigating potential tax risks and exposures.
Contributors Fred Campbell-Mohn [email protected]
Erin Collins [email protected]
Mike Dolan [email protected]
Debbie Fields [email protected]
Sheryl Flum [email protected]
Garrett Hahn [email protected]
Deanna Walton Harris [email protected]
David Lee [email protected]
Liz L’Hommedieu [email protected]
Timothy McCormally [email protected]
Alexandra Mitchell [email protected]
Rob Nelson [email protected]
Orla O’Connor [email protected]
Preston Quesenberry [email protected]
Barbara Rasch [email protected]
Randall Thomas [email protected]
Liz Young [email protected]
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.
kpmg.com/socialmedia
Tax Dispute Resolution– National LeaderSharon D. Katz-Pearlman [email protected]
Business Unit Leader EastMid-South and Chesapeake Michael P. Dolan [email protected]
New England Thomas D. Greenaway [email protected]
New York Metro/Short Hills Sharon D. Katz-Pearlman [email protected]
Pennsylvania Justin Donatello [email protected]
Short Hills Miri Forster [email protected]
Business Unit Leader WestGateway West/North Heartland Jeffrey S. Luechtefeld [email protected]
Chicago Metro/Mid-America Kathleen C. Schlenzig [email protected]
Dallas/Denver Victoria J. Sherlock [email protected]
Pacific Northwest Erin M. Collins [email protected]
David R. Unger [email protected]
![© [year] [legal member firm name], a [jurisdiction] [legal structure] and a member firm of the KPMG network of independent member firms affiliated with](https://img.pdfslide.us/doc/110x75/56649d355503460f94a0c50b/-year-legal-member-firm-name-a-jurisdiction-legal-structure-and.jpg)
